Wednesday, August 20, 2008

Barack Obama Wants Taxes To Be Fair, But What Is Fair?

Obama change pictureOn Saturday Barack Obama and John McCain debated, among other things, their tax policies. One of the main points drawn from that debate on the side of Obama was his goal to make taxes fair. He went on to say that wealthy people were not paying their fair share, himself included. He specifically targeted families earning more than $250,000 a year as wealthy. A point brought up by William McGurn in an opinion piece published in the Wall Street Journal, though, begs some thought. “As we come to the end of the Bush administration, the top 1 percent of American taxpayers already pay 40% of all income taxes -- the highest level in 40 years. The top 10 percent of income earners pay 71 percent of the taxes.”

McGurn asked, “What specific rate of individual taxation would it take for the rich to be paying their fair share?”

This is an interesting question to ponder. The rich obviously are in a better position to pay more taxes and still live comfortably, but at what point does it no longer become fair for them to support the poor and middle class masses? In another Wall Street Journal opinion piece, this one by Peter Ferrara, it is pointed out that the bottom 60 percent of income earners pay less than 1 percent of federal income taxes on net. This means that the top 10 percent pays 71 percent of all taxes, the next 30 percent pays around 29 percent of all taxes and the bulk of employees, the remaining 60 percent, only pay 1 percent. Strictly on appearances here, one would think that the wealthy are paying significantly more than their fair share. The top 1.5 percent of earners in the U.S. made more than $250,000, according to the 2005 U.S. Census. It is that 1.5 percent that is specifically being targeted by Obama. Do these taxpayers get more services in exchange for their increased tax payments? The answer is a most definite no. They actually receive much less in return, because their payments go to support all the social programs and so on for which they aren't eligible. Is this fair?

Moreover, according to Ferrara, if Obama is successful in his plan to increase Social Security payments for those making over $250,000 a year from 16 percent to 32 percent, they will receive less than a 0 percent real return from their lifetime payments. So they will actually end up paying for other people’s retirement. Again, this begs the question: is this fair? The answer, of course, will vary from one person to another, depending on their personal beliefs--and perhaps their income level.

Personally, I don’t think the word “fair” is appropriate. In my mind this tax structure is obviously not “fair.” In order to be “fair” people should only have to pay for the services they expect to receive or in some way benefit from. A wealthy person paying for the care of 1,000 poor people doesn’t qualify as “fair” in my book. That being said, I would never want to see 1,000 people dying of starvation so that a wealthy person could buy a new fancy sports car to add to their collection; I understand there has to be some sort of compromise. I think most wealthy people would probably say the same thing, but there is always something about giving money to the government through taxation that just gets on people’s nerves. Maybe it is because we constantly watch how they waste it. Because of this the wealthy always seems to find a sneaky way around these increased taxes.

Obama wants to raise taxes to pay for more social programs, but instead of increasing taxes for the wealthy, why don’t we appeal to their charitable side to accomplish the same social impact. We could get a little creative and try to figure out some ways to increase charitable donations from the wealthy, perhaps through tax incentives, but it could be done any number of ways. In the end, though, charitable organizations (at least good ones) are going to provide much more social impact for the buck than the U.S. government ever will. In addition, wealthy people are going to feel much better about giving more money to charity then they will about giving more money to the government. As a result, they might actually pay it as opposed to finding loopholes in the system. So to me this seems like a no-brainer: more change, happier taxpayers and less for the government to worry about.

It shouldn’t be about being “fair,” rather Obama should focus on accomplishing his goal of social change. He needs the wealthy to contribute more in order to see his goal to fruition, but increasing taxes isn’t the only, or even the best, way. Wealthy people have hearts, too--he should try appealing to those instead of trying to steal money from their pocket books.

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4 comments:

August 20, 2008 at 12:28 PM Property Adviser one said...

Interesting take. I think one of the reasons why the tax situation is so complicated is that you have thepeople that need the services are that ones that can pay for it. Looking at it in that way only complicated matters worse.

August 20, 2008 at 8:00 PM dsimon said...

In order to be “fair” people should only have to pay for the services they expect to receive or in some way benefit from.

In that case, do poor people get even more underfunded schools than they do now? After all, why should my state taxes go to fund someone else's educational program?

If we did that, then there would be no public education, and our society would be in far worse shape.

Obama wants to raise taxes to pay for more social programs, but instead of increasing taxes for the wealthy, why don’t we appeal to their charitable side to accomplish the same social impact.

Simple, for two reasons. First, there's the free rider problem: if the program will work only if lots of us give, then I don't have an incentive to give unless I know that it will be required of everyone.

Second, the private resources of even the wealthiest can't come close to matching the resources of the government. Walter Annenberg gave billions to help fund city school reform, but it was still only enough to fund specific programs in a handful of cities for several years.

All the generosity in the nation can't fund what is needed to make our society function; it has to be a governmental program, and it has to run on mandatory contributions.

August 20, 2008 at 9:49 PM Eric Ames said...

dsimon,

I appreciate your input, but allow me to respond to your points.

In that case, do poor people get even more underfunded schools than they do now? After all, why should my state taxes go to fund someone else's educational program?

Exactly, this is the point I’m trying to make about Obama’s “fair” taxes. I’m not debating the change he hopes to create in this post, but rather his labeling of these tax increases as “fair.”

Simple, for two reasons. First, there's the free rider problem: if the program will work only if lots of us give, then I don't have an incentive to give unless I know that it will be required of everyone.

What I was proposing is figuring out how to increase charitable donations. We could get creative and strongly encourage donations without technically requiring them, or we could simply say that they need to make the minimum donation or else they have to pay the taxes. What I’m more concerned about is giving people the choice about where they want to spend their money. It is my belief that if you give people a choice then they are going to be much happier about handing over more money for social programs. In addition I was also trying to make the point that if you get the wealthy on board with this they will also be less likely to avoid the taxes altogether. As the statistics have shown, simply raising the tax rates doesn’t always equal an increase in tax revenue.

Second, the private resources of even the wealthiest can't come close to matching the resources of the government. Walter Annenberg gave billions to help fund city school reform, but it was still only enough to fund specific programs in a handful of cities for several years.

Where does the government get their money??

All the generosity in the nation can't fund what is needed to make our society function; it has to be a governmental program, and it has to run on mandatory contributions.

Why??? It has been proven time and time again that governments are inefficient and that private industry is much more productive. If the government programs are so great why doesn’t communism work?

May 7, 2009 at 8:34 PM Best People Search said...

We could get creative and strongly encourage donations without technically requiring them
http://www.vcao.net the private resources of even the wealthiest can't come close to matching the resources of the government

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